A money unit that is not sponsored and controlled by a
political government naturally has no political boundaries;
and is in its nature a potentially universal unit. The valun,
being a non-political private enterprise money unit, is
boundless in the scope of its operation; and, if successfully
launched in any locality, may and should spread to all
parts of the world.
There is, of course, nothing to preclude any organizations
of private enterprisers from adopting valun principles and
setting up units by other names, but, if this should prove
to be the case, they will be as foreign to each other as are
the present political units, of which there are some sixty.
The probable evolution, however will be an extension of
the valun - because, if it demonstrates its success, there will
be no need to imitate it - since participation in the valun
system will be open to all. An universal monetary language is advantageous to all; and therefore to set up another
language is to defeat the purpose of trade, which by nature
is interdependent and unionist.
Thus we may approach the problem of determining and
defining the valun in the consciousness that we are creating
an implement of world trade as well as one to serve the
members of the initial Exchange that may be organized.
A review of the present polyglot money units of the world
may help us in gaining this universal consciousness. All
the money units of the world rate numerically lower than
the dollar except the English pound which is higher.
To comprehend the meaning of the varying positions of
money units in the scale, it will be helpful to refer back to
the catalogue of value relatives in Study No. 5. In this
example we took the sheep as the unit, thus making it the
figure one and other commodities were set in mathematical
relativity thereto. Thus the horse, for instance, became 5
because it was presumed to be five times as valuable as a
sheep or as valuable as five sheep. Had we taken the horse
as the unit, it would have become the figure 1 and the
same value relationship would have made the sheep .20 or
one fifth of a unit. Had the candle been taken as the unit,
the sheep would have been rated 100 units and the horse
500 units. Thus we see that rating a unit numerically
higher or lower does not indicate its standing in the scale
What does indicate the standing of money units, in the
scale of creditability, is the record they maintain in holding
their initial position in the numerical scale. For instance,
the English pound, before it began to decline, was rated at
4.86 to the American dollar. It is now officially quoted at
4.03; and, if the American cooperation in artificially bolstering it were withdrawn, it might fall as low as two or
lower. That it was set originally at nearly five times the
numerical level of the dollar reflected neither credit to it
nor discredit upon the dollar, but that it has fallen below
that level indicates discredit to it.
Political money units are artificial isolationist criteria,
whereas trade is by nature unionist. Therefore trade, that
should have no boundaries or difference in language, is
made polyglot. It becomes necessary therefore, in international trade, to translate one political unit into another.
This is called foreign exchange.
Here another sphere of relativity is created in which, as
in all relativity, there is necessarily a positive pole - or the
figure one. The premier unit among money units, or the
figure 1, is determined by the criterion of stability among
those nations having the largest foreign trade. The unit
that varies the least in its power in internal trade becomes
the world standard. The world standard, since the English
pound surrendered its leadership, is the American dollar - which
has been standard during the present century.
It happens that prior to 1934 the U. S. government
committed itself to give $20.67 for an ounce of gold, and
since then has been committed to pay $35. per ounce, but
the fact of the original commitment had no affect upon
the international rating of the dollar, nor was it changed
by raising the price of gold. It meant merely that the
equivalent of the dollar could be expressed in a weight of
gold. The dollar is and has been for nearly a half century
the international money standard regardless of the policy
of the U. S. government in pegging the price of gold.
Therefore all foreign exchange is dollar exchange, however
some minds may be confused because of the gold pricing.
As the dollar declines the purchasing power of gold declines
- showing that the dollar, and not the gold, is the controlling factor. Gold does not exert its purchasing power
directly upon other commodities, but vicariously through
its patron, the dollar. Therefore dollar decline means gold
decline. This tandem decline will continue until $35 per
ounce will be (due to the depreciation of the dollar) an
insufficient price for gold. Gold and the dollar will then
part company and gold will trade on its actual value like
all other commodities.
As all political units are foreign to each other so the
valun will be foreign to all, including the dollar. In due
course, if the valun demonstrates the greatest stability, it
will wrest leadership from the dollar, and become the international money criterion. If and when that point is attained it will signify the doom of the political money
system, and the approaching end of all national or political
monies; and the world will then be united on the economic
plane, regardless of its political divisions.
As stated in Study 5, any commodity or unit of value
may be adopted as the money unit. However in the presence of existing money units it is expedient to make a new
unit either par with or a fraction or multiple of, some
existing money unit. Obviously - because the valun is to
begin in the United States, and because the dollar is also
the international standard - it is advisable to base the valun
on the dollar. As is explained in Study 5, this implies only
the key note or the starting point; and thereafter the two
units become separate entities. It does not, should not and
cannot imply any fixity of relationships. But if we wish
to start the valun par with the dollar we must identify the
dollar by date; because here has been wide variation in the
power of the dollar during its lifetime. The following
table, made up by the Federal Reserve Bank of New York,
shows the price level, which conversely shows the increase
or decline in the power of the dollar from 1913 to 1939.
YEARLY AVERAGE 1913 - 100
1913 100 1918 162 1923 169 1928 170 1933 130 1938 152
14 100 19 178 24 170 29 170 34 136 39 151
15 102 20 202 25 l72 30 163 35 143
16 116 21 170 26 171 31 150 36 147
17 141 22 162 27 169 32 136 37 155
+41 00 00 -20 +12
Underneath each column of five years is shown the increase or decrease in the price level from the first year to
the last in the bracket, though it should be noted that even
in the 1918 to 1922 bracket, and the 1923 to 1927 bracket,
where the price level returned at the end to that of the
first year, there was variation in the intermediate years.
From the 1913 base year the peak of the increase in the
price level was in 1920 when it stood at 202, indicating that
the dollar had approximately half the power of 1913. We
are now approaching that level again - and of course the
inflation will continue to reduce it to possible extinction.
The ideal of money unit stability has never been and can
never be, attained by a political money unit. This is because it is constantly disturbed - either by the bank loan
process, or by political fiscal policy. Both these influences
are eliminated in the valun system; and therefore business
may at last hope for and expect a money unit that has approximately the same power in one generation as another.
We say approximately, since it may be too much to expect
perfection, in view of possible political influences, even
though the direct influence upon money be removed.
THE 1939 DOLLAR
Concurrently with the organization of the first Valun
Exchange there will be organized The Central Board of
Valun Exchanges, which will be the supreme authority for
coordinating all Valun Exchanges. Upon it must fall the
task of determining and proclaiming which dollar the valun
shall be based on. We suggest the year 1939 because it
was before the war inflation had exerted its influence upon
the dollar, and before the price control law distorted the
price index. In 1939 the price level was such that many
one cent items of merchandise were on the market, a considerable number of which have since departed. The dollar
is growing so small that the lowest denominations of coins
are meeting with diminishing use. The unit should have
such power that all fractions of it serve a broad range of
usefulness in exchange.
Assuming then that the 1939 dollar is adopted as the
basis of the valun, it will be necessary to compute the difference in the price level between that time and the time
the valun is launched. There is no way of making the
computation accurate because all price indexes are now
unreliable, by reason of the price control law which makes
it illegal to price items above the OPA ceilings. The affect
is to mislead the price index bureau - because no dealer
can afford to quote his black market prices, with the result
that the price indexes reflect only "red market" prices, i.e.,
those prices which actually involve a loss to the dealer but
which conform to the law. However, an approximation
will do so long as some percentage is arbitrarily stated for
the differential between the current dollar and the valun.
For instance, if, at the time the valun is adopted, it is
estimated that prices are twice as high as 1939, the valun
would be rated one for two of the dollar. If prices shall
have risen 500% the valun will be 1 to 5. It is advisable
to state some round figure approximation as the par basis - though,
after current prices are stated in the two units, it
will be simpler to state the price of the valun in dollars and
cents. The method of quoting prices of commodities in
the two units, and the price of valuns in terms of dollars,
was outlined in Study 6.
SETTING THE RATIO
To proclaim the ratio of the valun to the dollar is simple
enough. To make it operative is something quite different.
The Central Board can proclaim the ratio - but, to make
it so, the members must back it up by actual exchange
transactions. This confronts us with the question as to
what gives meaning to a money unit. If we think the
question through we realize that nothing but practice accomplishes it. There is a popular superstition that the
authority of government sponsorship, or some guarantee
of redemption, or some reserve, determines the power of a
money unit. But we know that money secures its meaning
solely by the act of purchase - and thus the whole meaning
comes from exchange itself. Nothing prior to or subsequent to or outside of exchange contributes anything.
Figuratively, we may say that all the members agree to
leave it to the Central Board to state the valun-dollar ratio;
and we may even imagine all assembled in a room and by
show of hands unanimously agreeing to accept the ratio
announced. But that is not enough. Concurrence must
be backed by determination through actual exchanges.
The question will be asked, "what is back of the valun?"
As a matter of fact, like any money unit, until something
has been exchanged for it, nothing is back of it. When it
has exchanged for something, that something is back of it.
Money's material backing is that which the seller surrenders
in exchange for it; its moral backing is the buyer's promise
to back it with an equivalent value when in turn he becomes the seller. Further than this, money has no backing
and more than this it does not need, but this is indispensible.
What then is needed to make the valun circulate is acceptors
and prospective acceptors. The initial acceptors must be
pledged to accept it for certain values which are determined
by the valun-dollar ratio that has been officially adopted.
Once this process begins, a mental attitude develops in the
acceptors which makes them indisposed to surrender the
valun for less than they gave. After the unit circulates a
number of times the mental attitude of traders jells into a
fixed habit of thought; and the unit has established itself
To attain this firm base, it is necessary for the members
of the Exchange to be pledged to a definite price level for
a period, of say three months, during which they agree to
neither lower nor raise prices in terms of valuns. The purpose is to get as much backing for the valun at a given level
by as many traders as may be necessary to establish a mental
fixation. After such period of mutual pledge has expired,
the operation of the law of supply and demand should be
unimpeded. The consequence should be variation in prices
of different items, some higher and some lower, but the
price level should remain approximately stable.
The preservation of the stability of the unit requires no
positive action. It is natural for it to remain stable. If
unstability manifests itself, it is indicative of the presence
of some unnatural element. The elements of destabilization
are, as previously stated, inherent in the political money
system; they are not native to a private money system.
Competitive traders (each under the necessity of keeping
costs down to meet competition) and consumers (each
trying to get as much as possible for his money) tend to
keep the money supply in equilibrium with goods supply,
and thus maintain a stable price level. The possible factors
tending to disturb price stability in a private money system
are discussed under valun Study No. 5.
After the initial price control agreement among valun
members has expired, only natural influences will remain;
and the dollar price of valuns will reflect the stability of
the valun, and the decline of the dollar under its inflationary influence. These dollar-valun prices will be quoted by
the Valun Currency Counter Association as explained in
Study No. 6.
Merchant members will follow these quotations in pricing
their goods in dollars. Thus if the valun is quoted at $3.25,
an item priced at 1 valun would be priced at $3.25, for the
trade that is not in the valun system. As has been stated,
all valun members will be obliged to deal with non-members on a dollar basis and therefore must maintain two sets
of prices, one in valuns and the other in dollars.
The problem of determining the valun unit and stabilizing it will be the problem of only the first Valun Exchange.
Succeeding Exchanges will be conditioned to its power by
reason of the fact that members of new Exchanges, as a
condition precedent to opening a local Exchange, must
have previously traded with members of existing Exchanges,
thus having accepted the valun on the basis of preceding
In the next Study we explain that any person or corporation anywhere would be qualified to hold Class B membership in any existing Valun Exchange. This Class B
membership would entitle them to maintain an account in
an Exchange and buy and sell freely, but not to overdraw
the account - which is the process of creating money under
the valun system, a power which is reserved to Class A
[Contents] - [Next section: IX. HOW THE EXCHANGE IS TO BE ORGANIZED]
Federal Reserve Note.
Backed by nothing.
| Gold & Silver Never Lie.